TORONTO (Reuters) - The Canadian dollar eased slightly against the greenback on Friday, shaking off tamer than expected inflation data as oil and gold prices rose, and the market looked ahead to an expected U.S. interest rate cut next week.
Domestic bond prices rose on the inflation data, and were also boosted by safe-haven buying ahead of the weekend.
The currency finished at C$1.0070 to the U.S. dollar, or 99.30 U.S. cents, down slightly from C$1.0061 to the U.S. dollar, or 99.39 U.S. cents, at Thursday’s close.
Canadian consumer prices rose 2.4 percent in December, while core prices — which exclude volatile items and are seen as a guide to future inflation — rose 1.7 percent, less than expected.
The currency eased slightly on the report, but largely held its gains of more than 1.5 U.S. cents from the previous session.
“Looking at the range, it was very much a flow-driven day, where the market was taking a bit of a breather after the hectic first four days of the week,” said Matthew Strauss, senior currency strategist at RBC Capital Markets.
The currency gained 2 percent on the week, helped by an unexpected 75 basis point interest rate cut by the U.S. Federal Reserve on Tuesday and a late week rebound in equity and commodity prices.
Both oil and gold pushed higher on Friday, with gold futures hitting an all-time high of $924.30, and oil climbing back above $90 a barrel, both giving an upward push to the currency. Canada is an exporter of both commodities.
Strauss said the Canadian dollar’s recent move and the commodity outlook suggests the currency is primed to retest parity with the U.S. dollar.
But he said next week’s direction will depend heavily on the performance of stock markets, as well as the U.S. Federal Reserve’s interest rate decision, to be announced on Wednesday.
Markets have priced in a half-percentage-point cut, which would support stock markets, but likely pull the greenback lower. If the Fed cuts less than that, the U.S. currency will likely rise versus the Canadian dollar.
“As well, the equity market would react very negatively to that, and that could hit the Canadian dollar we well,” Strauss said.
Bond prices strengthened on the weaker inflation data, and continued to rise through the session as falling stock prices gave a boost to fixed-income investments.
The Toronto Stock Exchange’s main composite index, surged early by as much as 250 points, or nearly 2 percent, but by the close has retreated to post a small loss. The U.S. Dow Jones Industrial Average, meanwhile, dropped 1.4 percent as investors locked in investments ahead of the weekend.
In addition to the Fed decision, Canadian monthly economic growth and producer prices data will be released next week, as will U.S. nonfarm payrolls.
The two-year bond rose 14 Canadian cents to C$101.81 to yield 3.224 percent. The 10-year bond climbed 70 Canadian cents to C$100.12 to yield 3.855 percent.
The yield spread between the two-year and 10-year bond was 63.1 basis points, up from 64.0 points at the previous close.
The 30-year bond gained C$1.38 Canadian cents to C$114.40 to yield 4.147 percent. In the United States, the 30-year treasury yielded 4.273 percent.
The three-month when-issued T-bill yielded 3.40 percent, unchanged from the previous close.